Can Brazil's Economy Be Salvaged?

A SICK joke making the rounds in Brazil these days is that after Dec. 17 the eighth largest economy in the world (a gross domestic product as big as China's) will disappear into a ``black hole'' in outer space. That's the date of the run-off election for the Brazilian presidency, followed by the former North American style lame-duck three months before the new president takes office March 1. And while Washington is devoting most of its diplomatic finesse to trying to rebuild the Hapsburg Empire in Central Europe, the largest country in Latin America is teetering on economic and political chaos.

Neither of the two presidential candidates - the populist trade unionist, a charismatic former auto worker, Luis Inacio Lula da Silva, nor the near-aristocratic conservative from Brazil's poverty-stricken northeast, Fernando Collor de Mello - has a cogent economic program. It isn't surprising. Brazil's economy is in a free fall.

The internal debt, now nearing $120 billion in curzados (official rate), is being financed by some $70 billion worth of ``overnight money'' now bringing an interest rate of 60 percent a month. (CDs are paying 12,500 percent at an annual rate!) With an inflation rate of about 40 percent a month, that means the real interest rate is about 20 percent monthly. No wonder that 71 percent of the 1990 budget (from Jan. 1) is programmed to go for paying interest on the internal and the external debt (another $120 billion).

Outgoing President Jose Sarney is getting divided economic counsel, grasping at the straw that he is leaving an exchange rate that has mysteriously been stable since August. Reaching back into Brazil's history as a corporate state in the 1930s, a system of industry-government ``chambers'' has been used to fix prices at 90 percent of the previous month's - or else. So far - that is for two months, an eon in the present Brazilian mess - prices have held. Nor can anyone quite explain why the cruzado's ``free market rate'' is only double the official exchange rate.

But if Lula, as he is called, wins the runoff, the business community expects all bets to be off. The populist has said he will unilaterally stop paying the foreign debt - ``saving'' $15 billion annually. He says that he will force domestic savers to leave their ``overnight money'' with the government longer since they cannot afford to keep even small change liquid in the face of the inflation.

Collor is being told by advisers, variously: (1) Pull ``an Alan Garcia'' by limiting foreign debt payments to a percentage of dollar exports - something that did not work for the social democratic president in Peru. Or (2), set external debt payments against a $10 billion limit on Brazilian reserves in order to harden the cruzado. (Reserves now stand at about $7 billion.) Or (3), go back to indexation (tying wages and prices to an inflation index), that Machiavellian Brazilian curse that helped bring on the present crisis.

There is also (4), Alberto Ades' proposal for a ``trade bond,'' part government-guaranteed foreign exchange security, part promissory note on future negotiable hard currency exports, part ``new money'' from Brazil's creditors.

Collor has only said publicly he plans to go back to Brazil's foreign creditors to ``renegotiate'' - ``what'' isn't clear after months of failure by a series of finance ministers.

There is some satisfaction to be taken from the fact that 82 million Brazilians have just participated in what must have been the fairest election in her history. But what the issues were, at least the economic issues, wasn't clear - either to the voters, or, apparently, to the candidates.